By Joe Wallace and David Hodari 

Oil prices declined Thursday as traders weighed the impact of a potential deal among major exporters to cut production amid the coronavirus pandemic.

The initial verdict: The cuts could be too little too late to match the sharp decline in fuel consumption around the world.

U.S. crude prices, as measured by West Texas Intermediate futures, fell 9.3% to $22.76 a barrel, a roughly 20% swing from intraday highs. Brent-crude futures, the global benchmark, lost 4.1% to close at $31.48, paring back earlier gains of more than 10%.

Prices shot up early as Saudi Arabia, Russia and other large exporters met to discuss coordinated production cuts aimed at buoying prices. Conflicting reports about the depth of proposed cuts and the willingness of some nations to go along reversed the morning rally and sent prices back down.

Saudi Arabia and Russia reached a preliminary agreement Thursday to reduce production, people familiar with the matter told The Wall Street Journal. The deal signals a possible end to weeks of feuding and market flooding that has weighed on oil prices that have already been rocked by the pandemic. Crude prices have fallen more than half this year as millions around the world have stopped driving and flying in efforts to slow the spread of the deadly virus.

The tentative accord is being hammered out as Saudi Arabia and other oil exporters work to broker a global consensus on oil-production cuts with a view to removing 20 million barrels a day from global supply, the people told the Journal. Investors remain wary as a virtual meeting between the Organization of the Petroleum Exporting Countries and its allies, led by Russia, continues, with Iraq and other major oil exporting nations yet to agree on cuts.

"A sizable cut would mitigate the issues we're seeing in terms of hitting storage capacity globally," said Saad Rahim, chief economist at commodities trader Trafigura. "But in a sense, it's too little too late for this month given the collapse in demand. The boats are loaded, the pipes are full, and the refineries are cutting runs."

Saudi Arabia, OPEC's de facto leader, has agreed in principle to lower production by four million barrels a day from output levels in April, the Journal reported. Russia, which has led a group of nations that had been coordinating with the cartel in recent years to prop up oil prices, would cut output by half that amount.

U.S. Energy Secretary Dan Brouillette is due to take part in a conference of oil ministers from the Group of 20 major economies Friday, which may result in assurances of broader cuts. Though in free-market economies, such as in the U.S. and Canada, there is little that policy makers can do to quickly drive down production.

Low prices are starting to do the job, however. U.S. oil production during the week ended April 3 averaged 12.4 million barrels a day, down from the 13 million that has been typical in 2020, according to U.S. Energy Information Administration data. Meanwhile, the number of rigs drilling in the U.S. and Canada this week dropped to 602 and 35, respectively, according to Baker Hughes Co. That compares with 790 and 240 in late February.

Investors remain concerned that even the largest collective production cuts in history may not be enough to support higher prices in the coming weeks as world-wide lockdowns pummel demand for gasoline, diesel and jet fuel. Global oil consumption is on course to plunge by almost 35 million barrels a day in April, according to Mr. Rahim.

Still, the reduction in output may help oil prices recover once lockdowns are lifted.

"If you cut 10 million barrels, and China's recovering and Europe then recovers and the U.S. starts to come out of [the coronavirus lockdown], then oil demand gets really tight really quickly," said Alan Gelder, vice president of refining and oil markets at consulting firm Wood Mackenzie.

Production curbs could also ease logistical strains in the oil market, stopping storage facilities from overflowing with a glut of crude and lowering the cost of chartering oil tankers, which has soared.

"It won't be enough to balance the market, but it will be enough to handle the oversupply with the current available storage," said Paola Rodríguez-Masiu, senior oil analyst at Rystad Energy.

Traders will scour the fine print of any agreement. One key detail is the baseline for the decline in output. Saudi Arabia, Russia and others have started to pump more oil since earlier cuts expired at the end of March, so there is a big difference between reducing production from current levels and those that prevailed in the first quarter.

Traders will also home in on the duration of any cuts, whether there are mechanisms for enforcing compliance, and the degree of involvement that OPEC and Russia require from the U.S.

Write to Joe Wallace at Joe.Wallace@wsj.com and David Hodari at David.Hodari@dowjones.com

(END) Dow Jones Newswires

April 09, 2020 16:02 ET (20:02 GMT)

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